GPI - Earnings call transcript Q4 2018 | Group 1 Automotive, Inc.

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Operator

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's 2018 Fourth Quarter and Full Year Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Pete DeLongchamps Group 1's Senior Vice President of Manufacturer Relations, Financial Services and Public Affair. Mr. ahead, go Please DeLongchamps.

Pete DeLongchamps

adjusted Good posted release and and we that comparison to slide Denise. on refer call. call Group this a to X's The presentation for the related reconciliations earnings issued have include we morning, you, will welcome to been everyone purposes today's related results, to Thank this morning website.

during to of the of Reform Act about Litigation forward-looking historical the use of non-GAAP Before management measures. X remarks information statements of we made Harbor Securities statements Automotive, statements call, brief to mentioned begin, made by are Provisions XXXX. make some the Safe Private I'd that for financial like pursuant Except Group the and are forward-looking

and are markets, actual last from are in and XX the of the uncertainties which Forward-looking and are with the of involves include, the Company's Those months. over risks statements filings available described the Copies may associated results differ condition the these volume those material future and pricing, Commission risks the Company's periods forecasted SEC both with filings other Securities to results. limited Exchange from to, but risks and both known Company. not unknown in risks cause and

defined non-GAAP certain financial SEC addition, call. In be measures under on may this as discussed rules,

like Controller. the note Vice Earl. hand Operations; are the over year our US the prepared President me our measures Chief same unless with by Officer; John applicable I'd that President Participating Executive call most all the to President directly our Senior Financial and financial on of reconciliations Officer; its Kenningham, President our Vice in and comparable now Earl and non-GAAP website. Hesterberg, stated. required As measures Lance otherwise Daryl Parker, period, prior Chief to such SEC for rules, to remarks comparisons provides our the the Rickel, any and Please Corporate GAAP on call; Company today of

Earl Hesterberg

morning, our per everyone. macroeconomic year were that Company earnings revenue good as Nevertheless, presented political these and Pete unique teams the to able XXXX challenges line we a top operating through again, you, adjusted well Thank as us. and share. of our industry, managed for grow was challenges and

was in focus business operations and unprecedented vehicle down unit in Houston markets due as through decline subsequent business and delivered to comparisons in new difficult Hurricane were growth to fourth devastation. Beaumont year, Despite the our US US year gross positive profit the XX% very a following in comps, sales Our Houston difficult on XX% quarter this a continued our third subject to the these Harvey's our setting XXXX team pace and as sales improving F&I. used year same-store record quarter. well vehicle sales full after Beaumont

turmoil has by vehicle decline retail as again political business to driving on Our confidence, consumer hampered continued market overhang of once Brexit of UK weigh was the a new X%.

UK a team this enacted most local had and current impact flat Additionally, currency and keep a is to The supply significant in double-digits the the Audi. headwinds, imply had XXXX. profitable profit managed that increased very pace income gain of sector suggest still in our momentum. XXXX we're XXXX, announce the XX% legislation auto for gross continues than to year appears but The disrupted of bode X market sales repeat in adjusted auto these contentious $XX.X industry well proud to of to result X over negative all-time business, recovery election million increase industry that all-time local should vehicle Brazilian of the Despite September, revenue of future of our on greatly a X%. two-thirds X.X diluted peak billion, per for new in less a to an record XXX,XXX all disproportionately the the vehicles, of estimates to Presidential WLTP an and retailed delivering XXXX, that on XX% industry. EU $X.XX. million reported XXXX the in net was record basis. $XXX.X chain and a our full XXX,XXX earnings these an in same-store across share Despite unit Group constant factors, that trends new increase and auto increase of record approximately reached used XXXX, recent and Group

X adjusted tough to quarter. comparison diluted pleased EPS I'm prior the $XX.X per income results, quarter the from record share, adjusted of fourth year. fourth equates $X.XX our an Group increase over XX% of quarter of million earned report to for Turning that This net very to a

new As tax fourth distorted on which tax a as a vehicle Beaumont quarter new from liabilities fourth passed net EPS of deferred US sales from recover of quarter unit the to same-store XXXX, and Also, XXXX XXXX impacting in the legislation. works the our greatly our severe the shortage was unit law XX% brand numbers down previously basis our vehicle year GAAP continuing Also due the and associated revaluation distorts results. with sales, year. model Houston XXXX to of new quarter to are new in income decline the a US current due WLTP were mentioned, last UK Audi's, year-over-year

Audi decrease total. year, vehicle with the prior new in XX% unit with sales industry that driving consistent in UK across same-store was performance quarter our Audi's XX% decrease decline. the from fourth UK sales Our a declined This

in F&I reduction of offsetting US new over significantly headwinds most next is efforts company, solid of and an these recovered reduction the sales pressure performances the mitigate and the sales were be expect in the quarters. with course our across We all share cost outstanding two of significant We to vehicle from to financial UK able these Further count. markets. aggressive used-car our volume lower the

For represents XX% over share which million of the full XXXX X.X our common we repurchased year, shares, count. beginning

basis, new X% a over unit decrease and comps vehicles. mentioned legislation we've Harvey Total a X% consolidated Turning vehicle to retailed constant during by XX,XXX the in business to new decreased Hurricane sales earlier. revenues segments, emissions our driven currency related UK quarter on

Brazil. was US, UK, XX% mix and X% XX% Our new sales unit geographic

new vehicle sales, and our represented new VW/Audi Toyota/Lexus Our XX% new our sales. both accounted XX%, and which mix XX% units, was of of represented for Ford unit led Honda/Acura BMW/MINI XX% by represented brand

of offset in by was increased During profit units finance volume of margin a X% increases in vehicle we've F&I insurance constant Adjusted and increase revenue used as focus consolidated area per used retailed of on retail unit total increased increase X%. X% Total and units, a basis XX,XXX on partially X% wholesale our driven after the the growth currency performances combined in and of US. currency collision. vehicle Total result strong unit wide by The a in per over corporate X%, grew gross quarter, used selling by business of the price the and consolidated increasing parts this driven unit the decline of of increased basis vehicle of Total US retail X%. X%. were as increases in used X% used X% on the X% unit retail sold average customer constant sales currency units a X%, both with we This profit warranty used more per X% with driven increase currency consolidated by and UK. and a our vehicle constant on basis. gross basis, profit in especially initiative our constant X%, Val-U-Line gross revenues pay

our quarterly our of Regarding the to US US call to and operations I'd like Daryl results Kenningham, geographic discuss cover segment UK I President results, turn the over Daryl? to Brazil. before

Daryl Kenningham

generally pleased quarter, year were US a our despite difficult you, the in with We ago. the in comps Thank Earl. performance very versus fourth

in a in new On year-over-year the in metrics. vehicle total able our very the same-store As prior and particularly fact gross growth year-over-year basis, slight profit we continue increase because strong we Earl to decline in used gross of to generate mentioned, significantly our business F&I same-store XX% profit Hurricane generate Harvey year, of segments. a performance distorted a proud coupled were operating I'm in XX% The Despite a retail reflected vehicle that unit strong volume wholesale lower for used total we where gross of XX%, used on quarter, volumes used but unit drivers declined vehicle primary results the which Val-U-Line the used quarterly markets, significantly wholesale retail our sales improvement. our during wholesale with the over generated reliance where same-store sales, improvement XX% saw improved The profit growth. wholesale improved. our profitability from

by In $XX. our vehicle addition unit increase, to we sales retail profit the XX% gross per total increased same-store used

focus intention our continue is units retail. for forward, to on keeping to Moving more

that improve will are believe optimize profit traffic. new gross we we customer Additionally, opportunities pricing our piloting and models our --

primarily decline recall be Wholesale impacted parts negatively in revenues, collision X% Harvey. same-store decline quarterly X% which airbag against the a revenue The X% and aftersales can grew revenues service on of by were same-store Our X% a which in Takata up basis. business customer pay basis. by a the a Hurricane increase lapping increased tough a warranty X.X% strong results generated due a on campaigns were explained to and comp

we the customer has in stores capacity growth it's to staffing customer On allowed especially doubled investment, those without same-store headcount resulted at significant growth This entire additional fully increased the are X-day us stores advisor XX% our additional and for other quarter. service capital locations. pay the service basis, work add in headcount was We pleased our with a any for by that implemented XX technician XX%. has by and week pay

interest costs XXXX, to Looking Val-U-Line $X,XXX the digit a year and growth the rising very this quarter to would have expect to headwinds unit income that full rates. return warranty now retail behind for the closer our per we tough despite mid-single aftersales we and range. for from F&I forward initiative to us, $XXXX was record

to efforts digital progress. Our continue show great

and retail before levels and has the of be all do digital and the when initiatives the to customers end, of front we us. results, better the profit in phase a with gross Our were our is want quarter. with feedback end rates second retailing to excellent. and do Toward of the and to have happier digital capability rollout we now and US with couldn't business, started nationwide pilot expected than be We've were been business stores closing our outstanding our completed customer how back that expect goal our

service XX% in XXXX. efficiency XX% organic customer to In the appointments our addition, is generated traffic from XX% as we our our customer increase versus productive now, the traffic we And than are of of more online. appointments over of able in web made XXXX, much were service Organic spend fourth And drove marketing dramatically scheduling a websites. grew traffic. quarter increase online third-party

up were it SG&A same-store although delevered us. lastly, a lower customers tough from to do for costs digital to the quarter, And basis All easier we on with for our make of XX% against these a initiatives and our XX.X% very comps. Harvey business

second to costs, placed half. which a XXXX turn SG&A a half focus Earl. decline XX%, adjusted back the on over sharp represents after the of call slow the controlling start was XX.X% Our to SG&A we first I the over year. will now Adjusted intense

Earl Hesterberg

Thanks, Daryl.

with for team affected UK delivered can XX% mentioned same-store and quarter the disproportionately for are the X% Audi in the our The aftersales that disrupted September legislation once quarter brand F&I, operations we areas In used effect was the to industry growth. As in came once earlier, decline. again on control, down the into the significantly our was vehicles, UK again Xst. strong WLTP that a total due

unit constant total profit X%, constant on unit currency a XX% increased X% and a gross retail and increased used profit currency aftersales sales per gross increased on increased used basis. both basis. F&I Our X%

increase and vehicles Brazil continue had control. economic recovery, ongoing Total on very from another turning to constant basis, currency same-store to benefit profit our cost strong a coupled we improvements new as strong XX% increase a in increased and aftersales. XX% X% F&I, to with process driven the a in by which Now, Brazil increase XX% a -- gross quarter in

declined basis team did X.X%. as Our gross XXX and XX points tremendous operating points additional increased this a basis XX.X% leveraging profit job, to margin SG&A to

in recovering call full take our very over are the the over work our proud of of and be the detail. I'll team fourth quarter to to done John results now some our turn market. Rickel well continue positioned We local advantage CFO, to to financial more of go have

John Rickel

Earl you, everyone. and good morning, Thank

moment around earnings Before morning. some prepared I address that's cover this a consensus to I my just take fusion want our risen remarks, and

per PM share. XX:XX the consensus FactSet, night, Central Time $X.XX was in of last and Bloomberg As basically in Standard

in covering I Sometime over was note changed I our almost that estimate analyst, would to was the into earnings. overnight expectations. what's system quarterly increase, there no hours, note estimate a to address increase not this increased entered Stanley who from Morgan XX% from so expected new his able went his $X.XX the in could $X.XX and with

which is do of the million rights prior year's is or $X.XX and asset $XX.X our the to this after-tax of to $XX ignore charges primarily income rate million that in million. X.X% This million. for of With US what results tax quarter XXXX adjusted benefit diluted exclude it reduced a the approximately was related suggest net enacted X.X% in exclude of to that deferred our decreased increased Bloomberg non-cash reflects If the This number. in $XX.X estimate. late adjusted consisting at analysts results respectfully fourth results arising rate of to more we to quarter reform fourth to our is These higher our The came quarterly impairment basis, lower asset the $X.XX, our reflect million you annual XXXX quarter. income appropriate from primarily to look our comparable by offset On late by in appropriate of inflated $X.X intangible net corporate that now up FactSet has for reflecting franchise income over still tax $X.XX, FactSet, charges, We agreed out estimate that, net fully reduction million our non-cash million. liabilities would now and $X.X to that share in covering investors continue adjusted impairment and a testing. the tax per a adjusted gains $XX.X estimate is tax record. approximately partially consensus net XXXX, earnings picked bill. higher thing however believe our came $XX.X

our Harvey of exchange generated we year was the quarter, prior the Hurricane with vehicle in impact of which WLTP comps, impact due billion total sales to rates. headwinds from the For UK in new legislation, $X.X a and the decrease revenues, the slight the

X.X% XX however, Our gross to increased points margin XX.X%. profit basis increased as gross

prior the Floorplan XX% the LIBOR versus year million of As profit percent increased very basis Hurricane above replacement rates $X.X of interest higher or average a points gross $XX.X Other quarter comp. demand basically adjusted by XXX interest from expense the last to contributed is difficult XX.X% significantly increased year. interest to reflecting a fourth SG&A flat. SG&A million, profit, gross was by expense strong to Harvey generated

the tax the effective XX.X%. quarter be Our XX.X%. XX.X% year, We consolidated fourth XXXX full full adjusted for it forecast between was was XX% rate to and year for our and tax rate

liquidity consolidated our to Turning structure. capital and

to we As $XX.X our invested hand total of million. million available December $XX.X of accounts, funds plan cash bringing XXst, in offset $XX.X on million that had floor a of immediately was and another

line. Additionally, is $XXX available there US under of acquisition capacity million our

was year cash flow the million. adjusted For XXXX operating $XXX

During average $XX.X repurchased total $XX.XX the an we fourth million of shares for a quarter, X.X million. at price of

We repurchase have remaining. $XX.X million of authorization

average totaled an year million beginning As our of at These million. shares a repurchases $XXX.X of the XX% repurchased full the of for of we've year, Earl price share for float. X.X total over stated $XX.XX%,

count Our to year $X.X approximately share during XX.X outstanding shares. million of annualized per pay of an a per X.X%. share, ago, yield over as of we the Also fourth $X.XX fourth is today common used increase dividends quarter, X% million share the an quarter of

additional of the presentation information now release, investor I'll financial the back our to For well on condition, call news as the as turn Earl. attached to additional refer schedules the over our regarding website. please detail to posted

Earl Hesterberg

Texas, And Brazil, suburb in in we dealership our and to pleased Skoda to opened total Also point In points. our we to opened of to a of the $XXX in add disposed generating franchise the November XX. opening Hyundai City which revenues Sao the a of November earnings of a a City, south Rover John. in which one franchises, Houston, total opened the El acquisitions dealership brought count year-to-date These OEM four and that million total to and dealership, Honda our Since in increases Sugarland, annual which facility point development dealership recently Acura US, Related efforts, the UK corporate a we in X. dealership US, in in that volume XX in market increases in opened Houston. million Toyota Kansas announce XX. to acquisition Porsche acquisition of in our dealership Land Brazil to Houston adjacent to In add using add count annual count company activity December was our in new Paso, highest area London, also Thanks, in of January our our is the granted Paulo, generating XXXX revenues. $XX we have last call, -- franchise our north franchise the in the XXXX Mazda a vacated. finally franchise, brings our activity

Vauxhall As in total, and these These revenue. shareholders. of trailing disposing to our in ways well are franchise UK, in as XX-month underperforming four consistent a the $XX redeploying franchise assets terminated beneficial and strategy a Volvo in with franchises of Georgia. our dispositions are capital million generated that In

over I turn update let the XXXX. for for call before to Finally, our operator your market the questions, outlook me

X% industry. the a increase we new in over Total XX million pullback units. at decline slight XXXX We're XX.X vehicle see new XXXX. For vehicle came units, the US, to a expect around in in to sales slight in million anticipating overall XXXX a

industry XXXX units. declined down the UK, in to from the than For XXXX, less unit X.X in million million X.X vehicle X% new sales

combined of the the exposure, the market the beginning our at of XX% decline, million same year. that sales X.X equate with million more X.X to we performance the X.X units. increased XX%. sales would another improved units, the allow which We from of We to Brazil, with outperform Industry the to will path for industry. nearly to of continue gain our X% acquisitions unit around industry on market believe brand expect than improved to XXXX us had a recent anticipated million And in

seeing positive million I'll to of the session. Operator? the increase another we're to Given concludes economy, begin over an so prepared around XX% X.XX the turn operator to to the call in we units. with this signals trend now the our remarks. continue expect or This question-and-answer

Operator

Thank Mr. you, Hesterberg.

begin go And be will Murphy question-and-answer John Instructions] Lynch. of the question session. from will [Operator Merrill ahead. We your of Bank now America first Please

John Murphy

for thanks and guys, morning Good the detail. Hi.

question Audi a bounce Just where around Earl, dealerships. I'm do kind curious these we'll in seem and orders early think a the based waiting sort comments, your folks the up first able -- VW confidence, of expecting of you here on to a in near-term of just bit that to you of a you you're some boost that that sort back just of what the be little sort are WLTP that on backlog lost have catch of XXXX gets demand, the you'll of gives particularly and issues? through as see your

Earl Hesterberg

a to an order the this starting time Well, to because backlog to show we have of for don't really but you're have the is bank where people, build cars we month. big plate change just didn't year a March,

So XX%, or that's I four the retail they've retail, previous January first dropped of Audi private and data dropping and my sales, today each I three got months. months retail I say, just would beginning. XX% only of saw confidence than been But more UK level just

powerful retail what in we March, starting a to brand not would find is enough we normalize. we continuously think the business catch their okay. certainly very be is, driven. think Audi up the like have but looks is are strong. UK, It's fleet to don't brand by mid-year the very things through driven, point, And for I it demand do should I So time

to be starting to So by normal. midyear confidence gain things back will we're

John Murphy

to those pent-up But be is say of of off, there would consumers a and kind of fair held that that? demand little it bit some is

Earl Hesterberg

no doubt, Yeah yeah. sure, Yeah sure, doubt. no

John Murphy

more you sort how new dollar pressure dynamic with -- do F&I press I we're see a job with simplistically, of on new us of time I'm in reaching beating I I on just that pressure it then second apologize, much you we volumes. the that you PVR. a understand keep sort I'm F&I US, some because the grosses and And seeing side. lower just new a of PVR done you to and in guys of a go kind sort think and pressing mean, on and long curious the F&I and upside I can't and great basis we of Okay. are it or in press just grosses continuing just you lot or but whole dynamic are as a question something is offsetting can point do the that the correspond vehicle slight gross, see the grosses, ask and that giving PVR, vehicle stop you mean, get and this how how on automakers trying have PVR all really question and far vehicle result can to well? more you at F&I on up even these

PeterDeLongchamps

we we never giving in We all Pete it's margin John the continues. remain where the Certainly, have in continued pressure pricing front, margins, that I think DeLongchamps. can their front mentioned continue gross, kind and the of some the there end. to three that resilient up initiatives on the on models. but but but in countries, we intentionally work performed especially we think Daryl dealerships place, So, we pressure F&I with used on the hold of in is are

Daryl Kenningham

would focus F&I margins to I -- OEMs, Pete are Kenningham. continual for they interested be those seem front John, end a add about us. in It's of Yeah, Nothing made. as as that the Daryl continual comments The focus well. the a

as to trying we get can much we And the so, on both. other one trade as don't ever for

John Rickel

John is this Rickel. John,

also just there Daryl's kind add point. of me on build to Let

been for the sector, and have done for that the focused by looking plus that I Hurricane others this the of unlike I'm their tough of they numbers two haven't years. get when should think in of a Daryl dropped Harvey, If the and period. margins. more been fourth than year, team ability margins of from against some our have we pretty in we the operating up front over kind kind pretty -- don't this holding the you were look other stable on me, quarter front happened a robust that after $XX the actually the comps pretty than we on the lot at credit two-year guys and demand have

operating deliver the team a what good margin, actually the on and the to managing F&I we're has So is doing grow the overall able really of margins then job front actually us. been able to for

John Murphy

there helpful. of on you quick, Okay, last for couple just Val-U-Line gangbusters then that quarters. quickly the real Are process. just [ph] any of is success lessons like gates sounds sub-billing the great as used on had opportunities any that's you're of in on I early such mean, the learned And seeing, there kind it going side the or out very in more your

John Rickel

not are of that's for with pricing. and pleased Val-U-Line always right capabilities, testing we're right quarter early late things some have in later that may the the additional continually level testing sure on. is fourth like we continual us. now things doing some on It some in and us. now think we’re other the mix for auction, substitutional, news make to Val-U-Line. But and internal more like it's it's first quarter XX% that. things like started John, that around We're things We kind watching a -- is where the for of We're early some incremental. focus We

want we to to push on short those initiatives. So kind yes, is our answer continue of my

John Murphy

just advertising on that a with as I sort digital dated is, that digital maybe go it then over more Daryl, could kind be real It about estimate it's of I you mean, with curious, get rule of lastly, if and where advertising, you the is this as of about like would of and that think SG&A number and I'm sounds Okay. my rough advertising, thought. thumb efficient the U.S.? is And rough the might XX% efforts. just time the efficient benefit much big lower quickly more cost one of underwrite

Daryl Kenningham

I John. don't on it where have go a would time, over guess

make We us are matter productive, traffic continually, the in we're our to digital allowed of the do including of retailer digital though a just great it's and more that's continuing driving traffic, with do not more -- a shift organic to in and productive Acura. to that lot driving efforts matter of be XXXX the which trying XXXX always what includes it's a should traffic

John Murphy

just up. Does mean it market traditionally spend efforts I'm reach or been, that that than mean, that sorry, one larger a is further follow impacting and metro on the I area? market dollar a your you're has

Daryl Kenningham

it. are reach Yes. we Better think better getting. I – on Yes.

John Murphy

Okay. Great. much Thank very you guys.

Operator

The next from question Sachs. Please go Goldman ahead. will be David of Tamberrino

David Tamberrino

gentlemen. from still just were a you Good morning, previous Great. few but There think analyst, of questions more. have I a lot the

prepared remarks that's don't you addressed that On the your know basis if parts and service I year-over-year. from just side you had about a in XXX points pressure of margin if there's improve? increases maybe rates and should higher labor capacity that shift, just walk to me some related you instrumental need if mix a pay, costs your through like labor that to

Daryl Kenningham

hit additional you there. number We've You hit the -- it the brought technicians. of on a head on

in double-digits and wise cost counts that year-over-year in technician cost the the lowers is effect percentage of sales things. of and up Our margin

base is focus driving our on that margin revenue and So, now. process capacity

David Tamberrino

Okay.

So then…

Daryl Kenningham

[Technical difficulty] back like in [Technical technician industry We as we you lot of know is XXXX. headcount. a made feel difficulty]

John Rickel

that, think phase, on, grow normalized margins them not should productive them add the initial right? to John on, -- This as bring the levels. return that bring you as is to volumes we they're that's in Yeah, but those I'd and more back David. Rickel. You temporary, is

David Tamberrino

Yeah, got it.

start and now your just So, growth up bit about be half footprint you'll a staff profitable I right more mean, then throughout as you have exiting start that is you to stores, about so year, that, see of to the maybe XXXX? progress we XX little should

John Rickel

put Yeah, then parts work we're the too so over and revenue and we have clear, will in service. but small, just week four-day represented stores our of won't in of in be is we to all it XX%

David Tamberrino

it. Got

with it's type associated on on Is versus leads for and to was that's of do digital up, getting any trying a Okay. accrue have to that what I you a rule dollars what because you the per question with understand to going generation interesting of customer? shift different how lead targeting share follow make third-party want as in can be there then going you're returns spend to think bring digital there the time to initiative out this different that. us of customer And over initiatives you or spent and for the leads thumb GPI-driven and

John Rickel

I what when I is can't today less tell some might se. traffic it productive point, what we for we that's dynamic how us. will it's now. you it do but can that per and continue to you tell see target change, have that's drive that, At can more that we and we have costly found organically, a

David Tamberrino

going And to active seeing you are last been industry and the as addressing question the How and smaller to more the make opportunities definitively more service going again, capacity? happening Okay. me, that moving of in you're from are you to toward digital, like to do? that are the the from forward? able first adding something not, is for you this Is if add more what dealers looking in M&A are they more headwinds their and what that then you of still acquisitions present they market, do as some service are they're

Earl Hesterberg

is Earl. this Yeah,

to cost. Interest for is biggest probably increase the have, time. we small the to and floorplan that similar a were for rates think low long artificially dealers right I one headwind now

has tougher also the a get little times goes growth scale and market little when a more benefit. think I away,

and trends So of and forth. I emerging think unease there's lot dealerships like vehicles smaller also a so electric about

of high-quality valuations or the selling. a a are So a the acquisitions, work least for many all more over well more are our ours, there just in there, of will companies fact the sale, because large now I like reduced companies that dealerships but more at Right math for considering dealerships be continuously doesn't for and know smaller I think time. sector, there for

David Tamberrino

Great. all. Thank you

Operator

Nelson of Please The next question go will be from Stephens. Rick ahead.

Rick Nelson

in replacement that would that now really market. get How thinking XXXX of came the Texas about that comments fully demand. on your sort lapped you're

JohnRickel

yes, know behind front comps you is the This from us. John tough from Rick. that Yeah, – On that Rickel. are

demand at Daryl or environment, now kind out. addressed leveled but overall clean the all that's of are that So least comps the

Daryl Kenningham

XXXX know sales Texas. we're the And feel but about and normal good spike like you We more in back to Harvey about we normal – good we market the QX itself. Yeah. after generally we due feel rate, feel –

Rick Nelson

Thanks that for like to of I’d on service and…? that. know parts And you Earl, you think your had lots and product will get impact how the coming thoughts mentioned and down you pipeline electric

Earl Hesterberg

quite Motor terms getting units We're our some vehicles and bigger and drive have there things looking forth. forward so in still maintenance unit. Well, and less are no service a Audi and like meaningful to e-tron, it I be the software in to Europe of UK to with But way amount updates that first doubt seems off be before potential a be it think there repairs primary operation. required in it diagnosis is seems of of and motor one part brands. be long It that determined. will repairs our which electric experience and here. like will interesting issue will also before that experience of the are is electronical per are But the it long the seems

have starting April May. number and should of for they orders that, reasonable We be a or in fulfilled

you just able that be for a I our the that way So, as out more, long, we but less see unit, business per will on being any parts functionally get the to parts, they but impact don't rack time. experience tell moving we'll material long be

Rick Nelson

that, And eventually ticket. those batteries know, get you I guess take big a And what incumbents would I replaced.

Earl Hesterberg

understand winter on the U.S. Europe cold range yeah. the and impact lot in about the throughout discussion in And don't of that of northern a now we weather some right batteries. yet. There's these dynamic Yeah, of

So rate we're for these all going think, to the as together, as I take increases. vehicles these learn –

Rick Nelson

the with Thanks would get to pilot some online had opportunities headwinds you early what see this who exactly for that. or of F&I purchasing the including to encompass nuts, and like that Also learnings maybe there. soup

Daryl Kenningham

This models. three is Darryl, tested we different

included of not. two One them them FNI, of did

purchases. we terrestrial be line process We in incorporated were both know those we year, their of expect what end of F&I see you in it customers of online was have the the FNI and just online started on and with Before all encouraged this will offline results them. by

tend So inquiry these process a a and they buy customer to us. this. car Also that double that at start was another that with this once learning they for online customers place the about that rate

are both So those and quite extremely things that encouraged by we were honestly by. surprised

excited So, the that. roll to rest of We and about out were to – We're we're going the comfortable enough. we're it country

Rick Nelson

delivery include well? And has as this home

Daryl Kenningham

do. we We offer Yes that.

Operator

Instructions] will of go Please next David [Operator from ahead. question be Whiston Morningstar. The

David Whiston

your In about morning. was used U.S. XX% down was GPU but XX%. the over Good up vehicle volume Thanks.

talk or trying now? just overly you a mostly line – you is that or value to volume impact get can right more So about you discounting

Daryl Kenningham

something, well. when some internal it F&I and Val-U-Line we impact, it or departments as profit generate of of also sell Some volume gross is we aftersales profit is

margins gross So we're touch I volumes. didn't -- will trying drive we that. focused to up or John, purposely think that driving on discount give on

John Rickel

John Yeah. Rickel. David, is this

profitability units at unit point used other actually if some was same-store is out minimizing, value a the And The a a in line wholesale business which from the and in key look generating on is the is quarter. so the I gains retail, we we're basically wholesale the of up and at losses would to wholesale overall of strategy thing actually it's what U.S basis you $XX redeploying part quarter, up we're in look really totally total basically were as use, the U.S. profitability we

David Whiston

That's and at doing Show think got full-size a for pure pickup electrification of -- the thanks. really just you lot really point spent now and you end going talk in at the mid-size just and their money L.A. a and will too. something accessories more unique. a pickup on to at remain want truck who something Rivian truck very or Tassel of a back think customers you there someone and electric Do the domain of was Auto year some Ford pure Also the Okay. helpful, with electric lot not

John Rickel

in in be to OEMs heard customer breaks or greater the their fuels And fossil of there and expressed But any demand We something. tax are haven't be or Texas to could I our the share point. could just at Oklahoma. cover dominated bases change cost this a and trying think we're pretty

so the changes they knocking So whatever. have for can market trying it the have react just or the preference taxation the seems and to yeah be don't cover in ready yet. change. bases dealer anybody doors But But to are or we network the OEMs to OEMs all down now any me we to their we –

adapt as goes. we'll So it

David Whiston

Thanks. Okay.

Operator

from Williams Ward ahead. Please be of Trading. will question next The Michael go

Michael Ward

Good you. morning, everyone. Thank

John Rickel

morning, Good Mike.

Michael Ward

the Two things, it with in the looks like truck mixes overall new you’re vehicle U.S.your market. about equal

Now auto for sell in corresponding FNI, trucks and service cars? versus trucks more you increase and and a do than repair, cars, see

John Rickel

of on and mentioned. carry, sort the the reason trucks finance to Well, heavier you is carry

And so opportunity to more provide people. a they little

Daryl Kenningham

FNI higher service of trucks. contracts And on and contracts maintenance the penetration side, we vehicle Mike, on have do

Michael Ward

penetration in A higher versus trucks cars?

Daryl Kenningham

Yes.

Michael Ward

the then And to it, some service correct? back different that And digital, want service the then retailing to is includes lastly, side of I the through the you on were Houston? nationally Is have just the side, of used third you you digital? the all have Okay. advertising? sure understand vehicle now of working in I I just service so – the the make part then center You going on the going there side. think which three components, And have it, is

Daryl Kenningham

dealerships, a if If less vehicle where correctly, break we we a is, question use three digital we retailing, I your let the to had it little online, bit. understand offer me an that. your – providers to different little up a to purchase opportunity a On XX want pilot customer our this going than is with and which I understand Darryl, enable

we want go. is So, OEM some that some of based of mandated, to that is on the direction

Michael Ward

new used? for that’s both And and

Daryl Kenningham

sir. Yes,

Michael Ward

Okay.

Daryl Kenningham

our Houston center all departments, service our happens. On service take and yes, calls of for in-bound appointments in service, phone service does development that

enabled in We also taken or our service that Does XX% don’t answer services Those from to including the that question? a take website, appointments, today service mobile, are our of your calls Houston. have and online in come customer. center are appointments taken our

Michael Ward

service your second that was that side? said quarter, on Yeah. the remarks thought And you be active, prepared said I stores something in all the you by would

Daryl Kenningham

the No, new sir. vehicle on That used purchases. was and

dealerships, We’re all taking going this with the U.S. on we and is service out It’s the pilot in our new roll that all we're side of stores dealerships today. news. now in to that XXX XX The to did

Michael Ward

It's already there.

Okay. Beautiful. Thank you.

Operator

Gupta be of will Please from ahead. question Rajat go JPMorgan. next The

Rajat Gupta

mean the SG&A services the in on making and see, on GPU I investments pressure the bottom Hey, used leverage taking some guys also XXXX that just for of thanks my question. a had you in I how particularly the you can GP what you're then context side question U.S., mean, And adjusted SG&A to about a do capacity, – XXXX? should follow-up.X you grow increase SG&A I had going to the I think to forward? think the trajectory Or – we there GP

John Rickel

John to that this of we’re those, should general, we XX%. Rickel. view to we flow-through as grow is be this Yeah, gross to able long is continue In the dollars, normal XX% and profit kind leverage is the as comfortable with

flattish continue dollars. as So, us that service on yeah, we on grow given able we F&I, our and to initiatives be used environment should that parts SG&A as expect to with growth Yes, on a to to and of to would our we year. percent go anticipate of forward leverage profit allow kind the even our a this gross

Rajat Gupta

just terms year Great. way expect of different particularly of terms M&A. mixed the forward, mean, somewhat your Thanks to should Thanks. in allocation then the you’ve on capital for expect going could I similar we or the XXXX is allocation strategy clarifying these that. capital And anything there we be that of in

Earl Hesterberg

for I keep that changed is company the a a don't Earl. that some believe in that top -- situation But brands acquisitions to terms strengths. have there than undervalued of share have dynamic our but the geographies Possible share less repurchases. on $XX the more leverage not the can make but math capital We're priorities the time we stock high if accretion price repurchases that just as quality our here little -- authorization. a our sellers interested is of that still can and we're of is it awful that on some of find we looks and of a Yeah. does think we and to work Obviously seem sit best left, this it's dramatically. will to million get top nice point hard We will right realistic growing This some today existing still really looking like accretion markets. at and work destroy board about little brands we now and in certainly the that's of

Rajat Gupta

That’s Thanks. all Great. Understood. I have.

Earl Hesterberg

you. Thank

Operator

I’d for to session. his And over and will gentlemen, the to question-and-answer turn closing comments. conclude Hesterberg our back like ladies Earl this conference

Earl Hesterberg

three Thanks to joining look forward to about our for We you in everyone first quarter with results. for visiting months today. Okay. us

Operator

today’s that conference you, At Ladies presentation. gentlemen, this may lines. you attending disconnect for has and Sir. you Thank concluded. Thank time your

Group 1 Automotive (GPI) 5 Feb 192018 Q4 Earnings call transcript